The U.S.-China Strategic Rivalry and its Implications for Pakistan

The U.S.-China relationship has grown increasingly tense in recent years. Policymakers on both sides have adopted a more assertive posture, not only in the realm of geostrategic maneuvers but in terms of trade issues and even human rights concerns. President Joe Biden has stated that China can expect “extreme competition” from the United States under his administration, and both countries traded angry rebukes during their first high-level talks in mid-March under the new U.S. administration.

Focusing on the fallout of this growing U.S.-China rivalry is especially important within the already fraught South Asian security environment, where the United States has invested in India to counter-balance China, while Pakistan has developed close ties to China. The speed with which the U.S.-China rivalry is intensifying, and the bipartisan nature of U.S. opposition to China have created an especially precarious situation for Pakistan. It is in Pakistan’s national interest to avoid placing all its eggs in the China basket and to resist potential pressure to side with China in the latter’s strategic rivalry with the United States.

This research note aims to highlight Pakistani perspectives concerning the unfolding U.S.-China rivalry, and to assess what strategic options Pakistan has for navigating the choppy waters of great power competition. U.S.-China tensions can complicate Pakistan’s efforts to maintain ties with both of these countries in a variety of ways, by compelling Pakistan to choose between maintaining increased economic and security cooperation with China and collaborating on these issues with the United States and the international community at large. An intensifying competition between the United States and China also poses major risks for regional stability in South Asia, including increased possibilities of conflict across contested boundaries, an escalating nuclear arms race, and an adverse impact on stabilization goals in Afghanistan and beyond.

It is in Pakistan’s national interest to avoid placing all its eggs in the China basket and to resist potential pressure to side with China in the latter’s strategic rivalry with the United States.

Pakistani policymakers are trying to keep their options open as they await the articulation of the incoming U.S. administration’s approach towards China and the broader region. This uncertainty comes at a difficult time in Pakistan, where the economy remains on tenterhooks for the foreseeable future. Already lackluster national growth has suffered as a result of the COVID-19 pandemic. Pakistan has also again been placed on a “gray list” of the Financial Action Task Force (FATF) through at least June 2021, raising the specter of further economic challenges.

Optimistic Pakistani policymakers aspire to play a bridging role to help ease tensions between the United States and China. Yet, more pragmatic assessments call for proactive management and mitigation of emergent risks created by the broader environment of U.S.-China strategic competition, which is likely to endure over the coming years. Some of the mitigation measures which Pakistan can adopt to lessen its increasing dependence on China include modifying how China-Pakistan Economic Corridor (CPEC) projects are implemented within the country and proactively identifying opportunities for the United States and other international investors to supplement Chinese financing.

This brief is informed by a year-long research project reimagining the longstanding but turbulent U.S.-Pakistan relationship, with a view to identifying recommendations to make bilateral ties mutually beneficial and sustainable.¹ Discussions revolved around the challenge of stabilizing Afghanistan, how the United States can better manage its closer ties with India without exacerbating Pakistan’s regional insecurities, and the impact of Pakistan’s growing relationship with China on its own political economy and relations with the United States. Building on this earlier work, this paper focuses on highlighting the strategic implications of the U.S.-China rivalry for Pakistan. It does so by drawing on emerging research; public statements of key American, Chinese, and Pakistan officials; and half a dozen interviews with key interlocutors well versed in Pakistani foreign policy motivations and priorities.²

How Pakistan Views the U.S.-China Rivalry

Pakistan’s strategic thinkers are not oblivious to ongoing U.S.-China friction, nor to its potential for impacting Pakistan’s own relationship with both parties. Opinions do vary, however, concerning how the U.S.-China rivalry may influence Islamabad’s relations with Washington, and what this may mean for strategic stability in the South Asian region.

Historically, Pakistan has maintained robust relationships with both the United States and China based on security, political, and economic interests. Current pillars of Pakistan’s relationship with the United States include Pakistan’s ongoing cooperation in Afghanistan, which will be required well past the U.S. military drawdown. While military and economic aid has decreased, America remains the largest export market for Pakistani goods and a choice education destination for the Pakistani elite. Conversely, China has become Pakistan’s largest supplier of arms, and it has initiated unprecedented economic cooperation via CPEC, with a projected value of USD $62 billon. Pakistani strategists also count on China for consistent support to contend with asymmetrical rival India and moral support in helping internationalize the issue of Kashmir—assistance the United States does not provide.

Complicating efforts at assessing the impact of U.S.-China competition is a perception among Pakistani foreign policy experts that the current political situation in the United States is currently undergoing significant transition. Many elites advocate for a wait-and-see attitude, arguing that alarmist American rhetoric on China was driven by domestic political considerations ahead of the November election, rather than a clear indication of U.S. policy going forward. This logic suggests Pakistani policymakers should adopt a cautious approach in managing bilateral relations with both strategically vital countries, and not be swayed into picking sides.³ Indeed, this strategy seems to be the one Pakistani officials have pursued at this early and uncertain stage when heightened tensions coexist with ongoing attempts to reach a workable trade deal between the two economic giants.⁴

Pakistan has ambitions of reclaiming its role as a bridge state—recalling when it facilitated U.S.-China rapprochement during the Nixon era. Some policymakers point to the possibility of Pakistan playing the role of “a neutral actor” to help defuse the tensions between the two great powers and becoming “a melting pot” of converging Chinese and American interests to promote regional prosperity (including in Afghanistan). In the process, Pakistan would stand to avail simultaneous security and economic benefits associated with preserving mutually beneficial partnerships with the two leading global powers, without needing to become overly dependent on either one of them.

Nonetheless, in August 2020, Pakistan’s Prime Minister Imran Khan made the blunt assertion that Pakistan’s future and its economic development are now intertwined with China. Subsequently, however, Pakistan’s army chief, General Bajwa, has stated that while CPEC remains central to Pakistan’s vision of economic prosperity and integration, viewing Pakistan entirely through a CPEC prism would be misleading. Yet, given that Prime Minister Khan’s government is in power for another three years and that cooperation with China seems to enjoy the full backing of the powerful military establishment, these statement could suggest which way Pakistan’s government would lean if it came under increased pressure to pick a side. Given the tenuous nature of the current bilateral U.S.-Pakistan relationship, such pressure is best avoided. Khan did manage to lessen initially acrimonious relations with the Trump administration, expressing the desire to transcend the historically transactional nature of the bilateral relationship between the two countries to forge instead a more “dignified” friendship. Yet, the complex realities of China-U.S. strategic competition will pose several challenges to Pakistan’s desire to maintain close ties with both China and the incoming Biden administration.

Alongside Pakistan’s deepening military and defense relationship with China, there is growing Pakistani economic dependence on China via CPEC, which has become a major component of China’s ambitious Belt and Road Initiative (BRI). Prime Minster Khan recently called CPEC “a manifestation of Pakistan-China friendship,” vowing, “the government will complete it at any cost…”. The Chinese Foreign Office spokesperson similarly termed CPEC “an important pilot project of BRI cooperation and a flagship for bilateral cooperation.” U.S. views of CPEC have shifted over the years, with Washington initially open to CPEC as a means of helping to stabilize Pakistan at a time when U.S. financial support was on the decline. In contrast, the Trump administration took a notably negative view of CPEC. Ambassador Alice Wells, former Acting Assistant Secretary of State for South and Central Asia, repeatedly criticized CPEC and its future impacts, saying that its “lack of transparency can increase CPEC costs and foster corruption resulting in an even heavier debt burden for Pakistan.” China has rebutted these claims by arguing that debt incurred from CPEC projects stands at USD $4.9 billion, which is less than one-tenth of Pakistan’s total debt.

There seems to be little appetite within the United States to out-compete China in terms of infrastructure financing in Pakistan, as well as a reluctance to foot the bill for unsustainable lending practices. It is reasonable for Washington to express concern about Pakistan’s economy, given its lackluster growth, limited resolve to increase its tax revenues, and challenges boosting exports. For Pakistan, however—as is the case for so many lesser-developed states around the world—the possible threat of BRI projects providing leverage for Chinese strategic ends is easily pushed aside by the desperate need for foreign investment.

For Pakistan, however—as is the case for so many lesser-developed states around the world—the possible threat of BRI projects providing leverage for Chinese strategic ends is easily pushed aside by the desperate need for foreign investment.

The provision of the three-year USD $6 billion IMF loan last year (and another USD $1.4 billion to combat COVID-19) has to some extent helped lessen Pakistan’s need to rely exclusively on China. Yet, Pakistan’s placement on the FATF “gray list” for the past two years—and the possibility of it being downgraded to the “black list”—remains a major threat to the economic security of the country. Leaving aside debates about the accuracy or motivations of FATF rankings, it is likely that any financial sanctions brought on by potential downgrading would invariably compel Pakistan to depend more heavily on China.

Despite Pakistan’s growing financial dependence on China, it has not been without agency when dealing with its powerful patron. The very idea of developing a deep seaport at Gwadar was, indeed, Pakistan’s idea rather than a Chinese initiative to further its “string of pearls” doctrine of establishing a strong maritime presence across the Indian Ocean.⁵ While Pakistan’s ongoing cooperation with China provides it opportunities to boost its economic prospects and strategic position in line with a rising superpower, it has also posed new challenges for Pakistan’s relations with neighboring countries, in addition to placing strain on its bilateral relationship with the United States.

How the U.S.-China Rivalry is Impacting South Asia’s Regional Stability

The U.S.-China rivalry is not only creating opportunities and complications within Pakistan itself but also influencing Pakistan’s relations with other key regional players. The growing synergy between India and the United States in the Indo-Pacific region to curb Chinese influence has not gone unnoticed in Islamabad, nor is this collaboration without consequence for Pakistan. A deepening U.S.-China rivalry could exacerbate the protracted India-Pakistan conflict by increasing advanced arms and intelligence capabilities on both sides, while at the same time undermining prospects for U.S. and Chinese cooperation on managing ensuing crises.

The revocation of the autonomous status of Kashmir and Ladakh by Indian Prime Minister Narendra Modi in August 2019 has heightened tensions among India, China, and Pakistan along contested borders within the Himalayan ranges. China’s border standoff with India in eastern Ladakh provides Pakistan an opportunity to push back against India alongside China through more assertive posturing along the contested lines of control, without resorting to the use of cross-border militancy to support the Kashmir insurgency. This opportunity, however, has heightened Indian concerns over a two-front threat in which it could face fighting along its borders with China and Pakistan simultaneously. While an unlikely scenario, these intensified threat perceptions could further destabilize already fraught Indo-Pakistan relations.

U.S. political strategists have pointed out opportunities for Washington to accelerate and deepen its collaboration with New Delhi in the context of India’s ongoing border dispute with China. Yet, while India’s determination to check Chinese power may be hardening, its capacity to do so seems to be faltering. India’s economic woes, compulsion to divert military resources to its land borders with China, and deepening dependence on Russia are among the factors limiting prospects for synergy with America’s Indo-Pacific approach.

Were Washington’s Indo-Pacific strategy, which is primarily based on maritime cooperation, to expand to help India address continental challenges posed by China, the implications could be serious for Pakistan. Though an abrupt shift remains unlikely at this time, announcements made on the heels of the October U.S.-India 2+2 Dialogue concerning American plans to share geospatial intelligence and sophisticated missile technology with India have caused alarm in Pakistan. Earlier, Pakistan’s Foreign Office had explicitly expressed concern over a multibillion dollar military deal inked during President Trump’s visit to India in February 2020.

Pakistan’s strategic planners are likely to continue enhancing the country’s conventional and (offensive and defensive) nuclear capabilities given the inability to use proxies due to internal repercussions and the threat of international sanctions (via FATF).⁶ While deterrence stability has thus far held despite several recent low-level conflicts between India and Pakistan, the threat of an escalating nuclear arms race in the region remains an issue of concern. The United States has worked with Pakistan to bolster its command-and-control structures, and the latest Nuclear Security Index acknowledged Pakistan’s resolve in this respect, ranking Pakistan the “most improved” country, particularly in terms of its security and control measures. However, South Asia’s nuclear arms race is being influenced by what has been termed a “strategic chain,” whereby Pakistan responds strategically to India, India responds both to Pakistan and China, and China in turn responds to both India and the United States. In addition to an escalating nuclear arms race in South Asia, U.S.-China tensions pose the added risk that Washington and Beijing could fail to cooperate as third-party crisis managers within South Asia if another conflict between India and Pakistan were to intensify.

The U.S.-China rivalry is also impacting Pakistan’s relations in the Middle East. Pakistan has seen some recent friction with traditional U.S. ally Saudi Arabia due to its reluctance to support Pakistan’s stance on Kashmir. China even stepped in to provide Pakistan another USD $1 billion loan to repay the Saudis, yet a complete rupture between Pakistan and Saudi Arabia seems unlikely at this time, even as Saudi Arabia and other Gulf states develop closer economic ties to India.⁷ Any drastic shift by Pakistan away from U.S.-aligned Gulf states like the UAE, Saudi Arabia, and Bahrain to a China-backed alignment involving Iran, Turkey, and Malaysia would be an overreach and not in keeping with Pakistan’s strategic interests. The latter group of countries, while all Muslim-majority, diverge in their views on numerous issues, including their relations with China.⁸ Rather than choosing sides, Pakistan will be better served by keeping its options open, and continually negotiating regional sensitivities, as it aims to link CPEC with the broader BRI project and attract diversified investment. ⁹

Regional players are watching developments at Pakistan’s Gwadar seaport closely. While there is no credible evidence of Gwadar being turned into a naval or dual-use port as of yet, Pakistan’s decision to transfer management of the Gwadar seaport from Singapore to China in 2013 and its joint naval drills with China in the Arabian Sea have fueled suspicions in the region. Pakistan is unlikely to support such an outcome, however, as a Chinese naval presence in Gwadar could inflame tensions between Pakistan and several Gulf states, which host a significant U.S. military and naval presence. The January 2019 announcement that Saudi Arabia would fund a USD $10 billion oil refinery project in Gwadar likely offers some reassurance to the United States given its close ties to the Saudis.

A reported China-Iran draft trade deal adds an unexpected layer of complexity in terms of balancing Pakistan’s already precarious regional relations. The potential USD $400 billion Iran-China deal could greatly overshadow Indo-Iranian cooperation at the deep seaport of Chabahar. Despite the hype generated by preliminary media reports about the ambitious deal, the economic feasibility of working with a heavily sanctioned state like Iran remains in doubt, and Iran has its own fears of economic exploitation by China. For its part, Pakistan is cautiously welcoming an increased Chinese presence in Iran, seeing it as a way to extend its economic reach. While a potential Chinese attempt to replicate CPEC in Iran may not serve to supplant India entirely, such moves could offer Pakistan the opportunity to be involved in trade routes to Afghanistan via Iran as well, especially if the Biden administration softens the current U.S. approach based on “maximum pressure.”

Notably Afghanistan is one area in which intensified U.S.-China competition seems unlikely to complicate Pakistan’s regional relations. Pakistan’s role in Afghanistan has largely been determined by its own threat perceptions vis-à-vis India, and these strategic interests within Afghanistan have been relatively insulated from the broader U.S.-China competition. Indeed, the future stability of Afghanistan is an issue that the United States and China are likely to agree on despite their broader competition. China has shown little interest in helping stabilize Afghanistan through military means, and evidence has emerged of China having reached some understanding with the Taliban to safeguard its own economic interests in the country. Yet, U.S.-Chinese competition need not further complicate the situation in Afghanistan, especially since China is not keen on seeing an upsurge of Al-Qaeda or the Islamic State within its close proximity.

Conversely, China, like Pakistan, has much to gain from some semblance of order taking shape in Afghanistan. Gwadar’s proximity to southern areas of Afghanistan has made it possible for Afghan traders to import goods via the Gwadar port under a newly inked expanded trade pact, which includes the opening of another trade gate in Badini, Balochistan. Such developments provide an encouraging precedent for the economic stabilization of Afghanistan, using existing CPEC infrastructure. Pakistan would welcome this approach, particularly should the United States and other states invest in related projects in the interest of Afghan connectivity and stability, potentially alongside Chinese investments.

The Way Forward

Although Pakistan has historic and now-growing ties with China, it remains heavily dependent on U.S. military hardware and on the U.S. export market. A more robust economic relationship with the United States, which goes beyond the carrot and stick approach of providing aid and exerting pressure, could certainly help broaden Pakistan’s policy options. Yet, in the absence of the existing political will within the United States to significantly expand bilateral relations with Pakistan, the onus will rest on Pakistani policymakers to identify feasible opportunities for bilateral cooperation with the United States in tandem with a tightening embrace with China.

In order to preserve continued space for U.S. cooperation, Pakistani policymakers must create more distance from China instead of blindly endorsing its position on Hong Kong or staying mute on the evident Chinese repression of Uighur Muslims. While realpolitik considerations may compel Pakistan to mute its criticism of China, it must avoid the folly of becoming a spokesperson for Chinese actions. Yet, this is what Pakistan’s Permanent Representa­tive to the UN did by making a joint statement on behalf of 55 countries at the General Assembly’s Third Committee on Social, Cultural and Humanitarian Issues claiming that “the Hong Kong special administrative region is an inalienable part of China, and Hong Kong affairs are China’s internal affairs that brook no interference by foreign forces.” Such actions not only undermine Pakistan’s goodwill amongst western democracies, but also make its apparent indignation concerning Indian atrocities in Kashmir ring hollow.

Pakistan can also implement specific measures to demonstrate that Chinese loans and investments in Pakistan via CPEC are not meant to facilitate China’s strategic depth. Pakistan’s ruling party had promised greater scrutiny of CPEC projects but reversed course soon after coming to power. Appointing a non-military Chairman of the CPEC Authority (currently headed by a retired three-star general) would help assuage such fears, as would increasing transparency. This, in turn, could alleviate some of the regional grievances exacerbated by CPEC.

While realpolitik considerations may compel Pakistan to mute its criticism of China, it must avoid the folly of becoming a spokesperson for Chinese actions.

South Asia remains one of the least integrated regions in the world. The United States and multilateral institutions such as the World Bank and Asian Development Bank (ADB) have also recognized the value of reviving the “old silk route.” These imperatives provide the rationale for Pakistan’s overall approach to CPEC to be guided not by strategic but economic imperatives, especially the goal of enhancing regional connectivity. Although Pakistan and China’s existing acrimony with India continues to impede the goal of broader regional integration, limited opportunities for increasing connectivity with other SAARC countries do exist. Using CPEC infrastructure to bolster Afghanistan’s trade with other countries—as with the transit trade now flowing through the Gwadar port—can help insulate CPEC from external criticism. India, too, was similarly able to avert U.S. sanctions for its cooperation with Iran on the Chabahar Port because this port was seen to help bolster Afghanistan’s economy.

While it is not feasible for the United States to match or exceed Chinese financing in Pakistan, Pakistan can aim to expand bilateral trade via the U.S. Generalized System of Preferences (GSP) program.¹⁰

This could entail addressing compliance-related issues to boost exports of specific in-demand commodities like mangoes, for example. Pakistan can also create an enabling regulatory environment to facilitate international and U.S.-based firms to invest in Pakistani infrastructure where they have competitive advantages, especially in the context of “greening” Pakistan’s otherwise expanding reliance on coal-dependent energy projects. Should Pakistan create a more attractive environment for investment, U.S. private sector firms could share technical know-how and equipment to support greener energy projects, providing much-needed economic ballast to the bilateral relationship. Former Pakistani Ambassador to the United States and current Ambassador-at-Large for Foreign Investments Ali Jehangir Siddiqui noted that Pakistan is open to the idea of expanding and diversifying its energy portfolio, given ongoing work on a broad array of collaborations within this sector.¹¹ It is unfortunate, however, that the Biden administration chose not to invite Pakistan to the climate summit being organized by the United States for late April, which will bring together leaders of 40 countries including China, India and other South Asian states like Bangladesh and Bhutan to tackle the global climate threat.

There is also a risk that China may also resist any future Pakistani attempts to broaden the scope of CPEC-aligned infrastructure and energy projects. However, Pakistan’s ability to resist such pressures will in large part depend on external willingness, especially that of the United States, to constructively engage with it. The United States remains Pakistan’s largest trading partner, and Pakistan’s relationship with the U.S. sends encouraging signals to European countries to invest in Pakistan as well. Conversely, diminishing ties with the U.S. would worsen Pakistan’s international standing and, in turn, compel it to depend more heavily on China, as has already occurred over the past decade. The United States should therefore seek to avoid alienating Pakistan despite its relationship with China and look for means of continued, mutually beneficial cooperation. Failing this, fears of Pakistan’s dependence on China and its potential to facilitate Chinese power projection in the Gulf could become a self-fulfilling prophecy.

Future scenarios that could compel Pakistan to choose between the United States and China, or at least make it increasingly challenging to maintain close ties with both countries, include Pakistan’s inclusion in FATF’s black-list. This would give Pakistan no choice but to become more dependent on China as other sources of financial support would no longer be available.¹² Such a level of dependence could, for example, impact Pakistan’s ability to resist pressure to convert Gwadar into a dual-use port. Pakistan being kept on the FATF gray-list over the long term may yield a less drastic, but an ultimately similar, China pivot. Removal from FATF’s gray-list could enable Pakistan to more easily attract foreign investments to balance, or even supplement, its CPEC projects.

The United States should also seek to ensure that its own attempts to enhance its strategic cooperation with India do not compound Pakistan’s regional insecurities and further push it towards China. It is now vital that the United States avoid viewing its relationship with Pakistan primarily through a competitive China lens (similar to its myopic focus on Afghanistan) to avert dangerously straining the bilateral relationship. Such a limited, competitive viewpoint would not only risk alienating Pakistan, it would worsen strategic stability in South Asia, increase the risk of regional conflict escalation, and complicate the goal of stabilizing Afghanistan. Thus far, Pakistan has not been a main arena of contention in the U.S.-China rivalry. It need not become so, especially if Pakistan and the United States take mutually beneficial steps to improve their own bilateral relationship.

Editor’s Note: A version of this piece was originally published on December 1, 2020 as part of the Stimson Center’s South Asia program’s series of Research Notes, which feature discussion and analysis of South Asian security issues from a range of regional and international authors. This version was updated on April 1, 2021 to account for developments since its initial publication. 

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Image 1: via Wikimedia Commons

Image 2: Madoka Ikegami-Pool via Getty Images

Image 3: Asim Hafeez/Bloomberg via Getty Images

1. Syed M. Ali and Marvin Weinbaum, “Leveraging a moment of change: Pathways to a sustainable U.S.-Pakistan relationship,” Middle East Institute, March 3, 2020, https://www.mei.edu/events/leveraging-moment-change-pathways-sustainable-us-pakistan-relationship. This ongoing research brought together a core groups of experts in Washington D.C., and, thereafter, in Islamabad, to deliberate on a range of Pakistan-U.S. convergences and divergences.
2. The informants interviewed for this paper included three former Pakistani ambassadors (to China, Japan, and the United States), and prominent foreign policy experts from Pakistan and of Pakistani origin.
3. Interview with former Pakistani Ambassador to Japan, Toquir Hossain, July 30, 2020.
4. Interview with University of Karachi Professor, Moonis Ahmar, August 4, 2020.
5. Daniel Markey, China’s Western Horizon: Beijing and the New Geopolitics of Eurasia, (New York: Oxford University Press, 2020).
6. Interview with Center for Global Policy founding director Kamran Bokhari, July 30, 2020.
7. India is an important market for investments and a significant importer of oil from the Gulf states, especially from the UAE and Saudi Arabia. There are a sizeable number of Indians working in both of these countries. Due to these economic ties, both Saudi Arabia and the UAE have avoided criticizing India over its growing intolerance towards Indian Muslims. The UAE even awarded PM Modi its highest civil award in 2019.
8. The Malaysian government has persecuted opponents for alleged corrupt deals with China. Malaysia is also taking an increasingly hardened stance towards China’s territorial claims in the South China Sea.
9. Interview with Professor Hassan Abbas, Near East South Asia Center for Strategic Studies, August 4, 2020.
10. Approximately 3,500 different products from Pakistan are presently eligible to enter the United States duty-free under the GSP program, which is set to expire on December 31, 2020, when it will need to be taken up in Congress for renewal.
11. Interview with Ambassador Ali Jehangir Siddiqui, August 6, 2020. Ambassador Siddiqui cited collaborations with energy firms from Saudi Arabia, the UAE, Austria, and the United States.
12. Being placed on the black-list would potentially prevent Pakistan from receiving financial assistance from the World Bank, the International Monetary Fund (IMF), the Asian Development Bank (ADB), and other international organizations.